Key Takeaways
- Citi analysts argue the recent semiconductor decline presents a buying opportunity, asserting concerns over AI investment pullback are exaggerated
- Leadership at both Nvidia and Broadcom have dismissed slowdown worries, with Broadcom projecting $115 billion in AI chip sales by fiscal year 2027
- Anthropic’s CEO Dario Amodei advocated for a coordinated global slowdown in AI development, receiving support from industry leaders Sam Altman and Elon Musk
- Major indices closed lower Monday with the Dow declining 152 points, S&P 500 falling 37 points, and Nasdaq dropping 146 points
- Crude oil futures climbed to $101.39 per barrel, marking the ninth increase in ten trading sessions and elevating inflation concerns ahead of the Federal Reserve decision
Market sentiment turned negative on Monday following calls for more measured AI advancement that sent semiconductor stocks tumbling, though Citi analysts view the decline as an attractive entry point for investors.
The Dow Jones Industrial Average shed 152.09 points, declining 0.29% to settle at 52,421.20. The S&P 500 retreated 37 points, down 0.48%, finishing at 7,619.98. The Nasdaq Composite declined 146.62 points, losing 0.56% to end at 26,186.41.
Factors Behind Monday’s Market Decline
The downturn was sparked when Anthropic’s CEO Dario Amodei advocated for a coordinated international deceleration in artificial intelligence model development, responding to concerns raised by a former employee turned whistleblower regarding the potential dangers of unregulated AI progression.
The proposal received endorsements from both OpenAI’s CEO Sam Altman and SpaceX’s CEO Elon Musk. In response, Microsoft issued a preliminary framework for responsible AI model training practices. Microsoft stock bucked the trend, advancing 2% to reach $505.41.
The semiconductor sector bore the brunt of the selloff. Industry observers note that if prominent AI research organizations reduce the pace of model development, this could translate to decreased demand for data center infrastructure, potentially impacting chip manufacturers’ revenues and pricing power.
Nvidia shares tumbled 3.4% to close at $210.96. The PHLX Semiconductor index experienced a sharp 5.9% decline. Corning, a leading supplier of fiber-optic materials for data center applications, suffered the steepest drop, plummeting 14% to $143.60.
Citi Maintains Bullish Outlook on Chip Stocks
In a research note released Tuesday, Citi analysts contended that investor anxieties regarding a potential AI spending contraction are unfounded. The firm highlighted recent statements from executives at both Nvidia and Broadcom, who have actively countered the slowdown thesis.
Broadcom’s CEO Hock Tan stood by the company’s ambitious projection of achieving $115 billion in AI chip revenue by the conclusion of fiscal 2027.
Citi’s analysis emphasized that the critical strategic value of AI dominance, particularly in the context of ongoing technological rivalry between the United States and China, makes a substantial reduction in AI capital expenditure highly improbable. The research note referenced President Trump’s public statements stressing the necessity for America to preserve its technological superiority over China.
Citi maintains Buy ratings on both companies, with a $315 price target assigned to Nvidia and a $515 target for Broadcom.
The investment bank further suggested that a more measured development pace might actually benefit equity valuations. A more gradual buildout of AI infrastructure could ensure sustained capital investment over an extended timeframe, according to Citi’s assessment.
Energy markets also pressured equities Monday, with oil futures advancing $1.34 to reach $101.39 per barrel. This marked the ninth gain in the past ten sessions, pushing crude prices up 18% for September. Contributing factors included Saudi Arabia’s closure of a critical pipeline and Houthi forces strengthening their control over the strategically important Bab al-Mandeb strait.
The 10-year Treasury yield momentarily exceeded 5% during Monday’s session, reaching its highest level since July 2007. Federal funds futures markets are now assigning a 95% probability to a rate increase when the Federal Reserve convenes Wednesday.
Market participants anticipate Federal Reserve Chairman Kevin Warsh will implement a rate hike, bringing the target range to 3.75% to 4%.
Bank of America shares dropped 5.1% to $59.47 following cautionary remarks from its chief executive regarding potential weakness in investment banking revenue during the current quarter.
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